The Bank of Floyd director election is over but the sideshow continues

Doug Schallar and new director Mauyer Gallimore
Outgoing Cardinal Bankshares Chairman Leon Moore
Doug Schallar and new director Mauyer Gallimore

When Tuesday’s long and sometimes contentious annual shareholder’s meeting for Cardinal Bankshares — the holding company for The Bank of Floyd — ended, bank president, chief executive officer and chairman of the board Leon Moore said the results of a contested board election would be posted on the institution’s web site in 24 hours.

The 24 hours came and went and nothing appeared on the bank’s web site nor was an 8K document announcing the results of the election posted on the web site of the Securities and Exchange Commission (SEC).

The election is over.  The votes were counted into the night Tuesday and the SEC certified Wednesday that shareholders ousted incumbents Bill Gardiner, Executive Vice president Michael Larrowe and CEO Moore and replaced them with real estate broker Mauyer Gallimore, attorney Jim Shortt and investment adviser John Paul Houston — all members of a coalition formed by North Carolina investor Doug Schaller, who owns 10 percent of the bank’s stock.

All existing board members — including the three re-elected — said they would resign if any of the challengers won a set on the board.  No announcement came Wednesday on whether or not they kept honored that pledge.

Several bank employees told us late Wednesday afternoon that they have been told nothing officially.

Instead of posting the election results, Cardinal filed the following notice with the SEC late Wednesday afternoon:

Effective May 18, 2012, Cardinal Bankshares Corporation (the “Company”) entered into a Sixth Amendment to Employment Agreement with the Company’s President and Chief Executive Officer, R. Leon Moore. The agreement reinstates Mr. Moore’s prior employment agreement and: (i) extends the term of Mr. Moore’s employment to the date of his retirement, which date will not be later than December 31, 2012; (ii) provides for the continuation of health and dental insurance under the Company’s group health and dental insurance plans for Mr. Moore’s spouse until March 7, 2017; (iii) clarifies that Mr. Moore’s benefits under the Company’s Supplemental Executive Retirement Plan and Bank Owned Life Insurance Plan will not be disrupted and will continue following his retirement, resignation for good cause or termination without cause; and (iv) provides that the Company will be liable for reasonable attorney’s fees, litigation expenses and court costs in the event that Mr. Moore or a third party beneficiary brings suit against the Company to enforce the terms of the amended agreement and substantially prevails. The remaining terms of the original employment agreement remain unchanged.

At December 31, 2009, the term of the original employment agreement ended, but since that time, in general, the Company has continued compensating Mr. Moore in a manner similar to the compensation he was entitled to under the provisions of such agreement. Pursuant to the employment agreement, as amended in May 2007, Mr. Moore’s annual base salary was $225,000 and was subject to annual review. However, Mr. Moore accepted only $210,000 per year under the contract, and since its termination has received $210,000 as his salary in 2010 and 2011. Mr. Moore also was entitled to participate in all incentive compensation, retirement and other employee benefit plans provided by the Company and its wholly-owned subsidiary, Bank of Floyd, to their employees, and to participate in the Company’s Supplemental Executive Retirement Plan.

Did the outgoing board try to hamstring the new board with a binding contract to protect Moore?  The new board members made it clear during their campaign for board seats that they want to replace Moore and change the management direction of the locally-owned bank.

Moore has worked without a contract since Dec. 31, 2009 but the new contract, put into place by the old board just four days before the annual meeting, attempts to keep Moore on the payroll through the end of the year and binds the bank to pay all benefits to both Moore and his wife for nearly five more years — through March 7, 2017 — even if a new board fires him.

Why was this information not filed with the SEC and made public before the shareholders meeting on Tuesday?  What will it cost the bank and its shareholders over the next five years?

These are legitimate questions.  The Bank of Floyd is a publicly-owned community financial institution and the public that owns it has a right to know.

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